The Effect of Organic Rice Consumption on households’ welfare in Shiraz: Willingness to Pay Price Premium

Individuals’ willingness to pay reflects their well-being or utility at presence of any improvement such as low prices or availability of health-based products. In order to examine the effect of switching from conventional to organic rice consumption on utility of households in Shiraz, their willingness to pay for such a change was estimated applying open-ended conditional valuation data and Heckman two-step procedure on the data acquired from 600 respondents by filling out a random questionnaire in June 2018. The results showed that about 89.3% of people are willing to pay a price premium for organic rice compared to the conventional rice. According to the results of Probit model, women are more likely to buy organic rice than do men. Also, the less the household size the more likely families are willing to consume organic rice. However, estimation of Heckman second stage showed that the effects of these variables on the price premium for organic rice are not significant. The effect of education level on selection and willingness to pay a price premium for organic rice was positive and significant. So that, the probability of organic rice to be selected by the head of households with a college degree is 61% higher than that of uneducated households. In addition, the willingness to pay of consumers with a college degree is estimated to be about 39% more than those of the others. The effect of household income on selection and willingness to pay for organic rice was found to be positive and significant. According to the results, the probability of choosing organic rice by high-income households is 73% higher than that of low-income ones and their willingness to pay is 32% more. The findings showed that there is a potential consumption market for organic rice in Shiraz and rice producers in Fars province can benefit from it and start cultivating organic rice.